Young couples and families decide to invest in rental property as a way to help secure their future financially. Investing in apartments sound like a great plan. The tenants are sure to provide you extra income stream, and you are able to deduct any mortgage interest from the purchase as a necessary business expense. Depreciation of the property on the other hand, allows you regular annual tax deductions. You can either rent out the property or invest in an apartment. Because of the ease in investing in apartments there are many people talking about it. But, just like any other business investment, apartments have their fair share of pros and cons.
100% Cash Flow
When your apartment stays occupied, you will have 100% steady income flow without you having to slave away 9-5 daily. When you have a property management professional help you, you can simply sit back and relax, and collect your check every month. That simple! With an apartment building consisting of 3-5 apartments, you can have steady cash flow even if one or two unit becomes empty temporarily.
Your apartment investment will surely reward you with market value appreciation if you follow sound management practices. You can later on charge much higher rent over time. If you enhance your property and the reputation of your apartment, your vacancy rates will dramatically decrease. This helps in boosting the capital gains as you sell it for profit later on.
Grow Your Real Estate Portfolio
Investing in an apartment complex will beef up your property holdings. Financial experts suggest that you hold as much as 25% of your investment assets in real estate for a diverse income portfolio.
Whenever you spend money on an apartment, the maintenance, repairs, ads, and management fees may be well written off as necessary business expense against the rental income. When the apartment suffers loss, you can deduct it up to as much as $20,000 from your non-rental income stream.
The downside of apartment ownership is that expenses remain when your apartment gets vacated. When the market is on a slump and you are unable to find a tenant for over 5 months, then that is precious five months of mortgage to pay with no single penny coming in. Insurance and property taxes can become due on your unoccupied rental property. In this case, you have to set a fund for this particular contingency.
Doesn’t Appeal to All Renters
Because of the locations apartments are generally in, lack of land and generally smaller living spaces compared to homes apartments won’t appeal to all renters, limiting your renter pool. There are some things you can do to increase the use of space in your apartment to make it look more appealing.
Managing your apartment by yourself can be burdensome and time consuming. Before a tenant signs the deal, you have to screen them, their credit histories, references, criminal records, etc. After they move in, you have to take care of their complaints, make repairs or have a contractor do it on your behalf. If the tenant violates the lease, refuse to leave, or damages your apartment, you have to take care of it all. To free up your hands with some time, you can always hire a property management to do all the hard work for you.
One fundamental benefit of real estate owning is that your investment property is sure to appreciate over time, and that spells more money for you as well as a steady cash flow. It’s a win-win!